After years of going sideways, gold is finally staging a massive breakout...
The metal finally broke above $2,000 per ounce – a key level for gold – late last year. And it has been off to the races ever since.
Gold has soared since early March. It broke above $2,400 an ounce this month. And the rally recently reached a rare setup...
The metal just hit major "overbought" levels. Normally, that would be a bad sign. But in this case, it points to double-digit upside over the next year...
Overbought setups tend to be a major warning. They signal that an asset has soared too high, too fast.
It's like a stretched rubber band that's bound to snap back soon. When the reversal comes, it'll be quick and painful.
This is the setup in the gold market right now. The metal has absolutely soared. And based on the relative strength index ("RSI"), it has reached overbought levels.
The RSI looks at the recent price action and determines if a rally or crash is too extreme. A reading below 30 signals "oversold" levels, which usually means a rally is incoming. Similarly, a reading above 70 signals overbought levels. A decline usually happens from there.
This time around, gold has blown through typical overbought levels. The RSI recently hit 84.5. That's the highest RSI reading we've seen for the metal since 2020. Take a look...
According to this measure, gold has soared too far, too fast... So we'd typically expect lower prices in the months to come. But history shows this pattern hasn't held true for gold.
To see it, I looked at each unique instance when gold's RSI soared above 80. That's darn rare. It has happened just 28 other times in nearly half a century. And after those cases, gold tends to keep rising. Check it out...
Gold has been a winner for investors for roughly 50 years. It has risen 5.6% a year over that time. But you can do much better if you buy after setups like today's...
Similar situations led to 4.5% gains in six months and 11.5% gains over the following year. That's fantastic outperformance – more than double the typical buy-and-hold return. And gold was up 68% of the time a year later, too.
The current gold boom has moved into overbought territory. But that doesn't mean the rally has to end...
Instead, history shows more upside is ahead. And that means now is the time to get exposure to gold.
Good investing,
Brett Eversole
Further Reading
Despite gold's new record highs, investors still aren't interested in the metal. But eventually, folks are going to flood into this asset. And when that happens, gold's bull run will start in earnest... Read more here.
Gold isn't the only precious metal investors are avoiding today. One useful contrarian tool tells us folks are extremely bearish on another commodity. It's trading at beaten-down prices. And that's setting up a potential buying opportunity... Learn more here.
